Scotiabank analyst 'positive' on National Bank's $5 billion acquisition

Meny Grauman views CWB purchase as low risk

Scotiabank analyst 'positive' on National Bank's $5 billion acquisition

National Bank of Canada has faced almost a 9% drop in its stock price following its announcement it will acquire Canadian Western Bank. However, the Bank of Nova Scotia has described the acquisition as a "strategic winner."

The acquisition is valued at $5 billion or $52.24 per share, which represents a 26% premium over Canadian Western’s last closing price before the announcement on June 11.

Scotiabank analyst Meny Grauman shared an optimistic perspective on the deal in a note issued on Monday. He wrote: “Overall we have a very positive view of this transaction. We tend to view in-market transactions as relatively low risk for large Canadian banks.”

The proceeds from this deal are expected to enhance National Bank’s capital reserves. Post-acquisition, the bank’s common equity tier 1 (CET 1) ratio is projected to exceed 12.75%, which Grauman described as conservative, given the regulatory minimum is 11.5%.

Approval from both the Canadian government and at least two-thirds of Canadian Western’s shareholders is necessary for the deal to proceed. There could be scrutiny due to competition concerns, especially considering ongoing consolidations among regional banks in Canada.

Grauman believes the chances of the deal receiving approval are high and does not anticipate any competing bids.

“We believe the deal has a high chance of getting approved.”